Inflation rises above the upper band for deviations from the inflation target

Based on final GUS data, CPI inflation went up to 4.3% YoY in April vs. 3.2% in March, running in line with the flash estimate and markedly above the market consensus (4.0%) and our forecast (4.1%). This means that it rose above the upper band for deviations from the inflation target set by the NBP (3.5% YoY), and has reached the highest level since March 2020.

Strong inflation rise driven mainly by a stronger growth in fuels prices

A stronger growth in fuels prices (28.1% YoY in April vs. 7.6% in March) was the main factor driving the inflation up, primarily due to the last year’s strong low base effect. Furthermore, inflation was also driven up by a stronger growth in prices in the “food and non-alcoholic beverages” category (1.2% vs. 0.5%). The stronger growth in that category mainly resulted from a stronger growth in the prices of meat, particularly poultry, mainly due to the last year’s low base effects and lower supplies caused by the avian influenza. A slower growth of energy prices (4.0% vs. 4.2%) related to a lower dynamics of gas and heat energy prices had the opposite impact. Inflation was also driven down by lower core inflation, which according to our estimates fell to 3.7-3.8% vs. 3.9%. The fall referred to above resulted from a lower dynamics of prices in such categories as “housing” (with waste disposal charges growing less strongly due to last year’s high base effects), “alcoholic beverages and tobacco” (a slower growth in the prices of both alcoholic beverages and tobacco), “health” (a slightly slower growth in the prices in a number of categories, particularly pharmaceutical products) and “restaurants and hotels”.

Higher demand and supply barriers boost core inflation

Last month we wrote that the core inflation growth seen in March was temporary, and it was largely connected with prices growing in some categories in relation to the third wave of the pandemic (see MACROpulse of 15/04/2021). We maintain that opinion. In May, core inflation will continue to be driven drown by last year’s high base effects in some of the categories such as “health” (including, for example, the prices of dental services) or “miscellaneous goods and services" (including, for example, the prices of articles for personal hygiene and hairdressing services). However, as regards the data for April, it is worth noting that prices grew more strongly in such categories as “clothing and footwear” (this is true about the prices of both) or “furnishings, household equipment and routine household maintenance” (the impact of growing prices of furniture). The growth is largely connected with pent-up demand having been released by some of the consumers and with increasing supply barriers in some sectors (see MACROmap of 26/04/2021). Prices growing more strongly in those categories will be curbing the decline in core inflation in the months to come.

Inflation will reach its local peak in May

We believe that inflation will reach its local peak at slightly below 5% YoY in May. Inflation will be on a slight downward trend in the coming months, mainly due to a slower growth in the prices of fuels and a decline in the core inflation (see MACROmap of 04/05/2021). Nonetheless, today’s data carries a significant upward risk for our scenario, in which inflation was to increase to 4.4% YoY in Q2 vs. 2.7% in Q1, and to 3.9% in 2021 vs. 3.4% in 2020. At the same time, we maintain our scenario, in which the MPC will not change interest rates until the end of 2022. Our opinion is supported by the most recent statement by MPC member J. Kropiwnicki, who said that he believed the inflation running above the NBP’s inflation target will not make the MPC tighten the monetary policy as the tightening could threaten the sustainability of the economic recovery in Poland. In our opinion, the NBP President A. Glapiński and some MPC members (R. Sura, G. Ancyparowicz, C. Kochalski, E. Łon) share that point of view, which means that the majority of the MPC are of the same opinion.

It was the last quarter to see a GDP decline year on year

In line with a flash estimate of GUS, the GDP growth rose to -1.2% YoY in Q1 2021 comparing to -2.7% in Q4 2020, running below the market consensus (-0.9%) and slightly above our forecast (-1.3%). Seasonally-adjusted quarterly GDP growth accelerated from -0.5% in Q4 2020 to 0.9% in Q1 2021. The data published by the GUS is a flash estimate; full GDP data including information about its structure will be published towards the end of the month. We believe that the GDP growing more strongly in Q1 2021 comparing to Q4 2020 was mainly a result of a higher contribution of investments, although there had been a decline in investments expressed in annual terms. Economic growth was also driven up by a higher contribution of consumption. We believe that consumption expressed in annual terms has increased for the first time since Q1 2020. In our opinion, lower contributions of net exports and inventories had the opposite impact on the GDP growth in Q1 2021. In the coming quarters, GDP growth will be driven up by low base effects, a growth in exports related to changes in global supply chains, which are favourable for Polish companies, and by the boost in consumption and investments related to the pandemic pacing out, so the first quarter was the last one to see a fall of the GDP expressed in annual terms. Today’s data supports our forecast, in which the GDP will grow by 4.6% in 2021 comparing to a 2.7% growth in 2020.

In our opinion, today’s data on inflation and the GDP are slightly negative for the PLN and the yields on Polish bonds.

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